Research the SF methods in your state while you explore the tax angle and offer them the most reasonable protection you can👍

2) How confident are you that you could get a new tenant in, that would treat your place the same and pay as consistantly as the current tenant in a reasonable time? 

Is your primary goal to avoid the logistics of the construction financing or do you have reasons that you're trying to supplement the construction loan? 

They got behind on the rent while living in your apartment and for some reason or another they werent paying you.

@Alexandra BeardNaics codes for this would not provide you any tax benefitsNaics codes are used for several reasons which primarily are for workers comp insurance and other types of insurance.

Management fees should be reasonable and align with the value provided.

The maintenance cost alone is reason to pass but all the risk of dehydration and other health issues is another reason not to move forward. 

Keep in mind that deals that look too good to be true are likely in depressed areas OR may be steep/unbuildable lots.

The first thing I'd recommend is determining what your goals/strategy are-- looks like cash flow based on price to rent ratios in these areas.The reason I'm saying this is because rentals or managing properties in general out of state present additional challenges, so you have to understand that going in and know that things will come up. 

Some hosts won't touch urban areas for that reason, but others feel like they can pivot if needed and do quite well.